Deleverage, prepare, or hoard cash?

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Author Message

Confused Professor

Major strategy problem here. I just finished my PhD, and I have a tenure-track teaching job that affords me approximately $1000 left over after paying the bare minimum for all our bills and payments. Our household debt is approximately $394,000 (allocation: 5% on credit cards, 5% auto loan, 45% private student loans, 45% federal student loans). No mortgage, just happy renting. Net "worth"? Very negative.

What should we do with the monthly surplus? The "Dave Ramsey" contingency preaches the debt snowball (all money allocated NOW to deleveraging). The "doomer" contingency preaches survival preparation (all money allocated to beans, bullets, and bandages). Last, but not least, the "deflationistas" (my favorite camp), preach that it's all coming down (asset values, prices, wages, etc.), and a pile of cash might come in handy. This is, of course, if you don't have your sailboat rigged yet. Maybe these are all the same people, and there is definitely overlap among these various views.

I am not at all confident that universities will exist in 10 years, so that is also on my mind. I guess I could work for the federal government? Wrong again. Tenant-gardening? Just need to grow enough for me and my wife and our three young children.

So, Dmitry, as your humble servant, I would like to know your opinion. Should we deleverage, prepare, or hoard cash (so as to buy/build a sailboat)? Or a mix? Or something else altogether?

Thank you for all you do.

Thursday 21 July 2011 03:13:32 pm

Dmitry Orlov

I think that you - just you, not anyone else here - should blow that extra $1k on ponies every month. Look at you: you invested years and years of your lives and racked up gigantic debts just to get into what you consider to be a dead end job. You have three kids that you have no idea how you'll be able to feed. A bit of a gamble, no? And you are asking for a neat little "strategy" to save you from a fiasco you so carefully crafted over many years? My solution is simple: gamble some more.

Friday 22 July 2011 12:06:08 pm

Confused Professor

You have accurately assessed the risky nature of my chosen path. (http://bit.ly/ampNb0) Fortunately, my life now has more schedule flexibility so as to enjoy my wife and children, pursue alternate skills, and master new and various tools. Apart from that, the global economy is currently "managed" by people that are, on average, approximately 58 years old (politicians, bankers, CEOs). I am more than willing to gamble that their overwhelming self-interest and hubris (and access to various printing presses and weapons) will allow them to craft deals and/or change-the-rules-as-they-go so as to keep the system propped up for the remainder of their natural lives. 10, 15, maybe 20 years? I bet I'll be out of debt before that. Or not. It's just money, right?

Friday 22 July 2011 05:50:40 pm

Wendy Brown

Professor - Invest in a self-sufficient lifestyle. In that way, regardless of what happens, you'll be in the best possible position, because you won't be dependent on other people to do things that you can do for yourself.

And own your home. In any survival scenario, shelter is the first priority.

Monday 25 July 2011 05:48:31 am

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I hope you will get the best job.

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